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How to deploy the concession model more widely

11 Apr 2019
By now, the concession model has sufficiently proven itself. Time to deploy it more widely!

With the concession model, the government can allow the market to make efficient investments with enough legal certainty and a realistic prospect of earning them back. The result: the government brings about innovations in the telecom sector (5G), the energy sector (offshore wind farms), and public transportation (train and bus fleet renewal). All the more reason to consider the instrument in markets where the willingness to invest is as low as entry barriers and margins. Examples of such markets include parcel delivery, industrial waste, and home care. In these markets, parties compete for every address, and the party with the highest network density has the greatest competitive advantage. Isn't there a better way to go about it?

Towards an optimum state of affairs

Unnecessary mileage is characteristic of parcel delivery, industrial waste, and home care. Several parties drive through the same streets and neighborhoods. Sure, it's a free market – but this doesn't result in the most economic and sustainable situation.

The concession model, however, can achieve an optimum state of affairs. After all, when one market player holds a monopoly over a certain region, district, or municipality, a minimum amount of mileage will ensure that the service in question is delivered. Moreover, the concession provider can demand a CO2-free fleet at the start.

Brief concession periods, new differentiators

How do you ensure end customers, consumers, and companies benefit from cost price advantages? It's an important question. In this case, a relatively brief concession period of 3 to 5 years can provide a solution. Also, a concession provider should maintain access to pick-up and drop-off data, so each successor can use this data during their concession period.

Since there's a large number of districts and the concession period is brief, the model will allow for sufficient players to act within the same ecosystem. Competitive capacity no longer depends on network density, which helps the market leader to leave competitors behind and stay ahead. Instead, a provider's innovative, creative, and analytical skills will become distinctive, resulting in a market consisting of hundreds or even thousands of micro-markets (districts or municipalities) that appear with a high frequency.

Parcel delivery market: considering one additional issue

In the parcel delivery market, there's one more practical yet complex question that requires an answer: How can we consolidate current providers at a single point from which the concession provider starts delivering its services? Also, will the responsibility for these services (which are provided to consumers) shift – and if so, how? If it turns out that governments want to reap the benefits of less mileage in a city or municipality, this issue will be even more interesting to unravel!

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